Year-to-date, the price of Bitcoin has risen by nearly 70%. Promote the total value of the entire crypto market to 2 trillion US dollars. However, the recent strengthening of regulatory scrutiny and severe price volatility have dampened Bitcoin’s prospects. Experts warn that Bitcoin may be heading for a downturn.
Bitcoin will crash?
In November, the price of Bitcoin soared to a record high of nearly $69,000. Currently, Bitcoin is less than $50,000, which is nearly 30% lower than its peak value. Wall Street defines a price drop of 20% or more from recent highs as a bear market. But it is worth noting that Bitcoin is notorious for its volatility.
Carol Alexander, a professor of finance at the University of Sussex, predicts that Bitcoin will fall to a low of $10,000 in 2022, almost erasing all gains in the past year and a half.
“If I were a Bitcoin investor, I would consider exiting Bitcoin as soon as possible because its price may plummet next year,” Alexander said. The reason she is short on Bitcoin is that Bitcoin is “basically worthless.” It is not so much an investment as it is a “toy”.
Alexander warned that Bitcoin might plummet as it did in the past after a sharp increase in price. In 2018, Bitcoin plummeted by nearly $3,000, having climbed to a high of nearly $20,000 a few months ago. Bitcoin supporters often say that this time the situation is different because more and more institutional investors are entering the market.
Todd Lowenstein, chief equity strategist at Union Bank’s private banking division, said that Bitcoin’s price trend is similar to many asset bubbles in history, and people always think “this time is different.”
A common reason to invest in Bitcoin is that it can be used as a hedge against rising inflation caused by government stimulus measures. Lowenstein said that the Fed’s hawkish stance may weaken the development momentum of highly valued assets and Bitcoin.
However, not everyone believes that the Bitcoin carnival will end in 2022. Yuya Hasegawa, a cryptocurrency market analyst at Japan’s Bitcoin exchange Bitbank, said:
“The biggest risk factor, that is, the Fed’s quantitative easing has landed, which may have been reflected in prices.”
The first spot Bitcoin ETF
A major development that cryptocurrency investors are paying attention to is that the United States will approve the first spot Bitcoin exchange-traded fund (ETF) in 2022.
Although the U.S. Securities and Exchange Commission (SEC) approved the launch of the ProShares Bitcoin Strategy ETF this year, the product tracks Bitcoin futures contracts, not the cryptocurrency itself.
Vijay Ayyar, vice president of corporate development and global expansion at cryptocurrency exchange Luno, said:
“The Bitcoin futures ETF launched this year is generally considered to be not very friendly to retail investors, because the cost of extending the contract is very high, about 5-10%.”
“There is increasing evidence that the Bitcoin spot ETF will be approved in 2022, mainly because the market is now large and mature enough.”
The asset management company Grayscale Investments has applied to convert its Bitcoin trust fund into a spot ETF. In addition, there are many other Bitcoin ETFs waiting for approval.
Switch to DeFi
With the development of the encryption industry, Bitcoin’s market share has declined, while other digital currencies such as Ethereum are playing a more important role. Analysts predict that this situation will continue into next year, as investors are increasingly looking at smaller cryptocurrencies in hopes of huge gains.
Alexander of the University of Sussex included Ethereum, solana, polkadot, and cardano on the list of cryptocurrencies to watch in 2022.
She said: “As retail investors begin to realize the dangers of trading Bitcoin, especially in unregulated places, they will turn to other currencies in the blockchain field, which are actually playing a role in decentralized finance. Important role.”
“At this time next year, I expect the market value of Bitcoin to be half of the total market value of smart contract coins (such as Ethereum and Solana), or even less.” Alexander added.
Bryan Gross, network director of the encryption platform ICHI, said that decentralized finance (DeFi) and decentralized autonomous organizations (DAO) “may be the fastest-growing segment of the encryption field.” The goal of DeFi is to recreate traditional financial products without middlemen, and DAO can be regarded as a new type of Internet community.
Data shows that this year’s total lock-up volume of DeFi agreements exceeded US$200 billion for the first time. Experts predict that demand will further increase in 2022.
However, analysts generally expect that regulation will become a key factor affecting the crypto industry in 2022. In addition to Bitcoin and Ethereum, regulators will also begin to review stablecoins and DeFi fields.